Banks increasing lending to SMEs

The country's micro, small and medium-sized enterprises are benefiting from timely support as banks have adopted measures to increase lending to smaller businesses.

In a move to boost the private sector, the government is working to facilitate private companies' bond issuance, through the central bank extending liquidity support to professional institutions.

The central bank announced recently that it will increase its quotas for relending and offering rediscounts to financial institutions by 150 billion yuan ($21.53 billion), to ensure targeted loans can be channeled to private firms. The move follows an expansion of the same amount in June.

Chen Bo, who owns a packaging company, said he expects his company's sales to increase by 10 million yuan this year, thanks to expanding production capacity. The expansion would not have been possible if not for a 500,000 yuan loan from a local bank, using his company's trademark right as collateral, Chen said. With the loan, he could buy new equipment to expand production.

Chen's company is located in the city of Taizhou in East China's Zhejiang province. Last year, it registered an output value of 30 million yuan.

Zhejiang is home to many of China's most successful private businesses, which accounted for nearly two-thirds of the provincial economy in 2017.

Nationwide, private businesses contribute more than 50 percent of tax revenue, 60 percent of GDP, 70 percent of technological innovation, 80 percent of urban employment and 90 percent of new jobs and new firms.

However, SMEs such as Chen's often struggle to secure financing, largely due to a lack of credit records, collateral or professional financial statements.

"Banks can assess big enterprises' creditworthiness and business performance using data such as information about their assets, but the case is different for small businesses," said Zhao Yanhui, president of fintech company Vzoom Credit.

"It was hard and inefficient for banks to assess small businesses' financial status. Using the traditional assessment method, it would take weeks or months to assess one company. It would be inefficient for banks to spend such a long time to arrange a relatively small loan, for example, 200,000 yuan or 300,000 yuan, in this way. There are so many SMEs out there, it is impossible for banks to assess them (via the traditional method) one by one," said Zhao, also a former professor at the National University of Defense Technology.

He said SMEs often require urgent financial aid because they usually do not have longterm plans like big companies do, meaning banks, with their long processes, cannot react to demand in a timely manner.

"Also, it was hard for banks to reach SMEs because there were too many of them," he said. "SMEs usually lack sufficient understanding of the banking system."

But this is starting to change.

"Starting this year, we have seen more financial products on the market," said Tang Jingang, head of Hangzhou Selene Photoelectric Technology Co Ltd, a private company worth around 55 million yuan. In the past, the company had to turn to underwriting companies to apply for bank loans, which usually charge 5 percent of the amount of financing received.

But because financial support has strengthened, companies can now apply for loans directly by submitting their tax records and documents reflecting their overall development.

"Skipping underwriting companies has helped us to save hundreds of thousands of yuan," Tang said.

Being able to use tax records to assess an SME's credit status has made the process more cost and time efficient, for both banks and applicants.

Zhao, who has worked in tax informatization for more than two decades, said that by using tax records, banks can easily and quickly assess a firm's risk and business status in a matter of hours.

"By making tax information available for banks, computers can complete the assessment process automatically and quantitively," he said.

Statistics from Zhejiang Rural Credit Cooperative Union show it has set up financial profiles for more than 1 million SMEs. The bank offers a wider variety of products now, allowing companies to secure loans by using accounts receivable, trademark rights, patent rights or equity as collateral.